Wilan – Mosaid Hookup Rumour

I was a bit busy yesterday and missed the goofy story published about Wi-Lan (WIN-TSX) selling into Mosaid (MSD-TSX) to create some type of publicly-traded patent machine. With the talented former Mosaid General Counsel Jim Skippen now running Wi-Lan, I guess the idea is that Skippen would want to put his two favourite companies together having struck a landmark deal with Nokia and cashing Wi-Lan up again. From what I know about the justifiable pride at the Wi-Lan board of directors, it seems like a strange time to sell, having worked so hard for 15 years to get where they are today. Having held from the highs to the lows of $0.60/share, Drs. Zaghloul and Fattouche must be thinking that $7/share is just starting to reward their patience for hanging on to a bunch of stock through the trough.

Here is Canaccord’s take on it:

“Going after the intellectual property evil-doers. Wi-Lan recently announced that it is in discussions on a number of initiatives, including the acquisition of patents and/or companies, combinations and/or mergers. A recent Dow Jones article speculated that Wi-Lan may combine with the likes of Mosaid to create an “Intellectual-Property Powerhouse.” The Wi-Lan/Mosaid rumour has its proponents and its detractors. Proponents say Wi-Lan is just starting the licensing process with some patents that have some 15 years before they expire, while Mosaid is considered a more mature patent licensing business that generates large cash volumes from its DRAM (dynamic random access memory) patents. Mosaid has about 700 patents issued or pending, but some of its key patents expire within the next four to five years. Rumour detractors point out that Wi-Lan basically has nothing besides market capitalization and Mosaid has a guranteed cash flow. Wi-Lan has found new life since its patent portfolio was licensed by Finnish mobile phone giant Nokia (NOK) last December. In addition to Nokia, Wi-Lan has already licensed its intellectual property to a number of major companies, including Cisco (CSCO) and Fujitsu. 2007 will be an active year for Wi-Lan with the initiation of several high-profile patent litigation proceedings. How about a Wi-Lan/Certicom (CIC) combination? Certicom’s intellectual-property portfolio, includes over 350 patents and patents pending worldwide, covers many key aspects of Elliptic Curve Cryptography (ECC).”

That last bit is equally goofy. Tech boards do not meet on a regular basis to discuss who might make a good, non-strategic merger fit…unless solvency is a concern. Something that isn’t the case at Certicom (CIC-TSX). Investment bankers might be pitching these deals, but those are called “coverage opportunities” on Bay Street, and are more about getting into the next financing syndicate than they are actually about the M&A fee in question. Bad pitch ideas don’t morph into fee-paying deals, but they do give you an excuse to get some face time for the Relationship Manager.

Even great pitch ideas rarely turn into deals, as people found when they pitched the leveraged buy-out (LBO) of Dofasco at $18.75/share in the late 90’s (sold in the $60s last year) or the LBO of Creo in 2004 below $9/share (bought by Kodak just over a year later for double). (I’ll get over those someday.)

But don’t bet the farm on a patent powerhouse deal in the coming weeks.

MRM